Closures, Layoffs Cloud Starbucks’ Near Term, But a Turnaround Looms

Things are looking a bit different at America’s largest coffee chain.

Starbucks announced last week that it would be closing more than 400 stores and laying off approximately 900 “non-retail” employees as part of a roughly $1 billion restructuring plan called “Back to Starbucks.” That’s on top of the 1,000 corporate employees the chain laid off in February.

As part of the new plan, the Seattle-based java giant will end 2025 with nearly 18,300 stores in North America — around 430 fewer than the company reported in its July earnings report. The stores being shut down are locations where the company “does not see a path to financial performance,” according to Starbucks CEO Brian Niccol.

Niccol said the company will offer transfers for coffeehouse staff to nearby locations “where possible” and offer “generous” severance packages to corporate employees being laid off, though it’s unlikely that will soften the blow of a mass layoff and hundreds of store closures.

“When it comes to store closures, customers who have grown accustomed to going to those locations that are being closed will absolutely be affected,” Yao “Henry” Jin, an associate professor of supply chain management at Miami University, told Commercial Observer. “It’s a calculated decision based on store location, profitability, as well as future viability, in terms of how they align with the future vision of what the Starbucks coffeehouse will be.”

Also as part of the new restructuring, Starbucks plans to renovate more than 1,000 stores to create a more coffeehouse feel and “introduce greater texture, warmth and layered design,” Niccol said. In other words, new chairs, warmer colors and more power outlets.

“As we build toward a better Starbucks, we’re investing in green apron partner hours, more partners in stores, exceptional customer service, elevated coffeehouse designs, and innovation to create the future,” Niccol said in the announcement. “We will continue to carefully manage costs and stay focused on the key areas that drive long-term growth.”

But, as Starbucks continues to lay off staff, close stores and change its branding, it remains to be seen whether the restructuring will work and whether customers will stick around.

“Starbucks, at this level, is no longer a coffee company — it’s a real estate company,” said Kate Newlin, a retail brand consultant and president of Kate Newlin Consulting. “It’s just about do they have the right locations? It reads as though they’re pretty convinced they have a lot of the wrong locations.”

Since Niccol’s announcement, dozens of Starbucks locations have started to shut down across major U.S. cities.

Three locations on Manhattan’s Upper West Side have shuttered at 159 Columbus Avenue, 2045 Broadway and 2252 Broadway. Those are part of the 34 New York City stores set to close, including spots across Manhattan, Brooklyn and Queens.

Meanwhile, nearly 20 Starbucks locations in Boston are set to close, including the chain’s famous store beneath the steaming kettle at Government Center. And, in Seattle, the brand’s hometown, the company is even closing its first-ever reserve roastery at 1124 Pike Street, local TV station KIRO 7 reported.

Why is Starbucks closing some of its most popular urban locations? A lot of it is due to size, Jin said.

The company’s stores in cities are less conducive to becoming Niccol’s idea of larger coffeehouses, as those city locations have “very little front space that do not allow them to remodel because they’re limited by space,” Jin said. As a result, roomy suburban locations may be more viable for turnaround than a compact urban spot.

The urban closures are also largely due to migration effects from the COVID pandemic, according to R.J. Hottovy, head of analytical research at foot traffic tracker Placer.ai. Since 2020, 2.7 million residents of large urban counties have moved away to other areas — twice as many as in the three years leading up to the pandemic, according to the Economic Innovation Group.

“Our data suggests that we’re still in 70 percent recovery, give or take, in terms of the number of pre-pandemic visits across the country,” Hottovy said. “You’re seeing less people come into offices. And, with that, some of those locations are probably not economically viable anymore. So I think that the closures will probably skew toward more urban locations.”

The restructuring also comes as overall store visits to Starbucks declined nationally in recent months.

Monthly overall store visits to Starbucks were down 1.1 percent year-over-year in August, and monthly visits per location were down 5.4 percent, according to data from Placer.ai.

“It’s been inconsistent in terms of ups and downs, in terms of year-over-year trends,” Hottovy said. “Some of that may be impacted by existing store closures that have been made, and some of it probably is impacted by increased competition, particularly from drive-through concepts like Dutch Bros and 7 Brew that continue to do very well from the visitation standpoint.”

Those smaller drive-through coffee chains are certainly growing in popularity. During the first week of September, a record 59 percent of American coffee drinkers who bought coffee outside of the house purchased it at a drive-through, up 9 percent from the same period in 2024, according to a report from the National Coffee Association.

Meanwhile, less than half of Starbucks’ current inventory of roughly 17,000 U.S. stores include drive-through windows, the report said. And that number will probably go down even more as Niccol focuses on turning the company’s existing coffeehouses into more inviting places for customers to stay for longer periods of time.

All that remodeling is also going to cost the company some big bucks, especially as global tariffs add up.

“On the financial side, all the remodeling is going to come with a big chunk of expense already,” Jin said. “Now, with the recent tariffs on Brazilian coffee, as well as the low yield due to climate-driven changes, it’s also been pushing up the price of Arabica coffee in particular.

“The price effect ripples across the entire world, and that causes an overall cost inflation for Starbucks as well,” Jin added. “So, when you are talking about a sudden rise in expenses used to remodel stores, along with a rise in component input like the price of coffee, all of that is going to result in a very negative financial shock on Starbucks.”

While Starbucks’ plan to close stores and lay off employees will cut costs and likely offset some of those expenses, it’s going to take some time before the company sees positive results financially.

During the third quarter of Starbucks’ fiscal year 2025, the company’s global comparable store sales declined 2 percent, driven by a 2 percent decline in comparable transactions and a 1 percent increase in the average amount a customer spends per transaction, according to Starbucks’ July earnings report. The company’s operating income also decreased to $918.7 million in the third quarter, compared to $1.4 billion during the same period in 2024.

“I would expect probably a little bit more promotion and TV advertising [from Starbucks] than what we saw last year,” Hottovy said.

Recent negative headlines surrounding Starbucks are also adding to the hubbub, as strict return-to-office mandates flood in from HQ and barista protests become the norm.

In July, Niccol — who left his previous helm at Chipotle to become Starbucks CEO in September 2024 — announced that all corporate workers were required to come into the office a minimum of four days per week, up from the previously required three days. In addition, Niccol announced that all staff of Starbucks’ support center working remotely would need to relocate to the company’s Seattle or Toronto offices within the year.

(Niccol, meanwhile, commuted by private jet to Starbucks’ HQ from his home in Southern California for roughly a year. He has since bought a house closer to work.)

On top of stricter workplace policies, protests and strikes constantly surrounding Starbucks’ baristas could be causing hesitation from customers. In Newlin’s words, “even the baristas aren’t proud to be there.”

In May, more than 2,000 Starbucks baristas at 120 U.S. stores went on strike to protest the company’s new dress code, which required employees at locations in the U.S. and Canada to wear a solid black shirt and khaki, black or blue bottoms, according to the Associated Press.

Before that, Starbucks sued its own workers union — Starbucks Workers United — in October 2023 for expressing solidarity with Palestine over the war in Gaza, which caused decreased foot traffic, falling sales and plummeting market value. Besides that, baristas are constantly fighting for better pay and fair union contracts.

Then there’s also competition from other major coffee chains like Dunkin’.

In 2024, there were 328 Starbucks locations across New York City’s five boroughs —  significantly fewer than the 626 Dunkin’ stores in the city, according to a report from the Center for an Urban Future.

Dunkin’s high store count is due to its focus on convenience, as opposed to experience — a factor that could eventually give Starbucks the upper hand if it focuses on enhancing its stores’ ambiance, as well as keeping its fast-paced environment.

“What the current Starbucks leadership recognizes is that when you only focus on convenience, what you’re doing is you’re commoditizing your product and service,” Jin said. “Because convenience as a product or service is something that any company can do. But, in doing so, you’re losing the identity of your coffee and who you are as a company.

“I think a lot of the moves that Brian Niccol has made really makes it abundantly clear that he does not view convenience and the coffeehouse vibe as two mutually exclusive elements,” Jin added. “What he wants to do is make the coffeehouse experience first and foremost, and then the convenient piece is what makes it even better.”

As Hottovy said, Starbucks is taking on a “pretty big endeavor,” but its main mission will be to win back customers desiring that “third space” — a comfortable environment separate from home and the office, yet conducive to remote work — instead of a quick grab-and-go coffee shop.

“I think the company recognizes that the coffeehouse feel, where you could actually get work done and enjoy that, has somewhat been diluted, because you’ve invited this convenience customer,” Hottovy said.

“There’s congestion, it’s probably loud, and I think the company recognizes that, so they’re trying to win back that group,” he added. “And, given their footprint, they do have an advantage in trying to get that.”

In fact, Hottovy said the average amount of time visitors spent in a Starbucks store actually started to go up in August, meaning some of the company’s “Back to Starbucks” initiatives could be working.

“There’s a lot of room to go, but it does feel like some of the things they set out to do are having success,” Hottovy said. “It’s a very dynamic market, both from a competitive and from a macro standpoint right now, but at least you can kind of start to see little signs of evidence that it’s working.”

Plus, with its massive store footprint and history in the retail market, Starbucks still holds its title as America’s most reliable retailer when it comes to real estate, according to a source who has transacted on behalf of the company in the past.

When a developer is building a new retail site — whether it’s a mall or space at the ground floor of an office building — they want somebody “consistent,” the source said. Starbucks still “dominates the market,” and, if anything, the restructuring will likely help them “fine tune” the brand and create an even more desirable tenant choice for developers, the source added.

Ripco Real Estate’s Peter Ripka has completed leases for Starbucks in the past, and considers it one of the globe’s better brands. The work it’s doing now seems natural to him.

“When a company’s store network has as many locations as they do, it makes perfect sense,” Ripka said. “In fact, it’s prudent to prune the network of either unprofitable locations, stores that are just not contributing to the overhead, or stores that no longer fit the direction of the chain.”

This is especially true given the wider effect that a Starbucks can have on its surroundings.

“Residents still view Starbucks as potentially changing the character of a town,” Jin said. “So, if that is indicative of anything at the national level, I still do believe that Starbucks is a driver, but also possibly part of a trend towards increased street-level commercial activity.”

It helps that Niccol has also done this before. In his leadership role at Chipotle, Niccol led a massive turnaround by focusing on mobile ordering and a renewed emphasis on food safety and fresh ingredients. As a result, Chipotle’s annual revenue more than doubled from $4.8 billion in 2018 to $9.9 billion in 2023.

And, while Niccol plans to write a similar comeback story for Starbucks, looking at the past isn’t always the right move when it comes to restructuring a brand, according to Newlin, as “it’s unlikely you can drive anything by looking only in the rearview mirror.”

No matter the approach, Niccol’s plans require one thing above all else: time.

“When you’re talking about a company of that size, turning it around is going to be more like turning around the Titanic than turning around a sailboat,” Jin said. “The larger the company, the more complex the supply chain. Unfortunately, the more complex the supply chain, the slower it will be to turn the company around.”

Isabelle Durso can be reached at idurso@commercialobserver.com.